Spain’s Rajoy Fails to Quell Graft Criticism Amid Calls to Quit

Feb. 4 (Bloomberg) -- Spanish Prime Minister Mariano
Rajoy’s assurance that allegations of illegal payments are false
failed to contain criticism, with the opposition demanding he
step down to restore faith in the political class.

“Rajoy should resign to make way for another prime
minister who can re-establish the strength, credibility and
stability that Spain needs,” opposition leader Alfredo Perez
Rubalcaba said during a televised press conference yesterday, a
day after Rajoy had faced the public and vowed to carry on.
“Spain needs a strong, credible, and trustworthy government.”

The revelations in newspaper El Pais of alleged illegal
cash payments, including extracts from handwritten ledgers by
the former People’s Party Treasurer Luis Barcenas showing
payments to officials including Rajoy, have rocked the country
as the prime minister seeks to navigate the economy through the
harshest austerity measures in Spain’s democratic history.

The records published in El Pais, Spain’s biggest
newspaper, show Rajoy allegedly received 25,200 euros ($34,100)
each year for 11 years from a secret fund set up by Barcenas.
Rajoy said he never received illegal payments, and that he
hadn’t not become a politician with the goal of making money.

The request for his resignation comes as Rajoy struggles to
contain a deficit and rein in borrowing costs which hit a euro-era high of 7.75 percent in July. At his press conference on
Feb. 2, Rajoy went on the attack, saying the allegations come
from “unknown people” seeking their own gains.

Forged Documents?

Esteban Gonzalez Pons, a spokesman for Rajoy’s political
party, said yesterday that the accounts published in El Pais are
based on “doctored” photocopies, and that any calls for Rajoy
to quit risk destabilizing the country. The newspaper hasn’t
responded to allegations its report may be based on inaccurate
sources.

Spain’s IBEX 35 stock market index fell 2.5 percent on Jan.
31, the day El Pais first reported the corruption allegations,
marking the biggest daily percentage drop since Sept. 26. The
yield spread between 10-year Spanish and German benchmark bonds
was little changed over the week at 353.5 basis points.

Spain’s gross domestic product fell 0.7 percent in the
three months through December from the previous quarter, when it
declined 0.3 percent, the Madrid-based National Statistics
Institute said on Jan. 30. That’s more than the 0.6 percent
contraction the Bank of Spain predicted on Jan. 23. GDP dropped
1.8 percent in the fourth quarter from a year earlier and 1.37
percent in the full year from 2011, INE said.

Worst Case

“In a recession of this magnitude, the worst thing that
can happen to the Spanish economy is a political scandal,” said
Jose Carlos Diez, chief economist at Intermoney SA in Madrid.
“This is a theme that is going to be in the spotlight for a
while and could undermine investor confidence if not addressed
quickly.”

According to two surveys carried out by Metroscopia on
behalf of El Pais between Jan. 30 and 31, and Jan. 31 to Feb.1,
the People’s Party support declined in February to 23.9 percent
from 29.8 percent a month earlier, the lowest in the party’s
history because of the economic crisis and the corruption
allegations.

The accounts published in El Pais show a series of
contributions from construction executives and only a portion of
the revenue they show was deposited in the party’s official
account for donations. Obrascon Huarte Lain SA Chairman Jose
Miguel Villar Mir paid 530,000 euros between 2004 and 2008 and
former Sacyr Vallehermoso SA Chairman Luis del Rivero donated
380,000 euros, the newspaper said.

Petition

A spokesman for OHL said Villar Mir never made any
contributions, either legal or illegal, to the party. A
spokeswoman for Sacyr declined to comment.

A social media website called Change.org has collected
771,675 online signatures from the Spanish public requesting
that all members of the People’s Party implicated resign
immediately. The petition, which was put up on the site on Jan.
31, is targeting one million signatures.

During his Feb. 2 speech, Rajoy pledged to make his tax
declaration and list of personal wealth accessible to the public
by publishing them on the government’s website next week.

“If someone believes that because of this harassment that
I’ll lose spirit or abandon the task given to me by the Spanish
people, then they are wrong” Rajoy told reporters on Feb. 2,
“This government has set itself a task and I assure you it
won’t be sidetracked.”